The Supreme Court of Canada decision of Shafron v. KRG Insurance Brokers (Western) Inc. was released on January 23, 2009. The decision illustrates the care that employers must take to ensure that any non-competition clauses (or other restrictive covenants such as non-solicitation clauses) in their employment agreements are drafted clearly. In this case, an insurance salesperson had signed a non-competition clause preventing him from being employed in any insurance brokerage business carried on within the Metropolitan City of Vancouver for a certain time period. When he left his employment and began working for another agency in Richmond, the employer commenced an action to enforce the non-competition clause. The problem was that the term "Metropolitan City of Vancouver" was not a legally defined term. Recognizing that the parties had intended the clause to mean the City of Vancouver and something more, the British Columbia Court of Appeal applied a legal doctrine called "notional severance" to essentially re-write the clause to mean the City of Vancouver and certain surrounding municipalities. The Supreme Court of Canada overturned the decision of the British Columbia Court of Appeal, finding the clause unenforceable, and holding that it is improper for a court to impose in hindsight what seems to be a sensible arrangement that the parties might have made, but did not. Normally, the reasonableness of a non-competition clause will be determined by the geographic territory, the time period, and the scope of the activity prohibited. An employer will not even get a chance to argue reasonableness if it cannot first establish what the clause means. The decision does not mean that it is impossible to enforce a non-competition clause. However, the decision reinforces the fact that a non-competition clause must be clear and unambiguous, as well as reasonable.
- How-to guide How-to guide: Overview of US employment law (USA) Recently updated
- How-to guide How-to guide: How to draft the key provisions of an employee handbook (USA) Recently updated
- How-to guide How-to guide: How to draft an employment contract (USA) Recently updated